But Detroit filing for Chapter 9 municipal bankruptcy protection would be a drastic last option, one that would ignite a costly battle with lawyers representing creditors, city worker unions and retirees that could last for years, bankruptcy experts say.

Detroit could end up with legal bills in the hundreds of millions of dollars and far more cuts in its already meager public services, meaning potentially fewer cops and firefighters and more city departments privatized or eliminated outright. Workers could be terminated, and those who stay would face deep pay and benefits cuts.

A federal bankruptcy judge could allow the city - or the state, through an emergency financial manager - to rewrite labor contracts or toss them out altogether. The city could find itself proposing the sale of major city assets to pay down its enormous debts.

"It's a situation of 'Be careful what you wish for,' " said John Pottow, a University of Michigan Law School professor whose expertise is in bankruptcy law.

Those who think it would be better to move the battle over Detroit's financial future out of political deadlock in the corridors of City Hall and the state Capitol and into a federal courtroom might be surprised at what Pottow calls "a new normal." He sees federal bankruptcy judges becoming much more aggressive in forcing change on distressed local governments.

"The judges are much more involved," Pottow said. "They're reflecting an amenability to serious labor cuts, and I think that's surprising to a lot of people who didn't think they'd do much in bankruptcy. We are in a new era of Chapter 9 and using it in new ways. It's an unknown, uncharted and unpredictable process."

To be sure, Detroit Mayor Dave Bing and Michigan Gov. Rick Snyder say they want to avoid a bankruptcy filing for Michigan's largest city.

That wish was underscored last week with Treasurer Andy Dillon's blunt warning that unless Detroit can manage a seemingly impossible amount of change in the next five weeks - including the City Council approving crucial contracts Tuesday aimed at restructuring city government - the state will be left with little choice but to appoint an emergency financial manager. Dillon said the 30-day review process to install a manager will begin this week.

But given the slow pace of reform and the political clash over how to get there, it's becoming increasingly unlikely Detroit can remain solvent. Snyder said last week that his staff has begun reviewing municipal bankruptcies in other states, and the picture is not one they want to replicate in Michigan.

One high-ranking city official, speaking on condition of anonymity, confirmed that Dillon told city officials the state has begun preliminary discussions about the level of losses the state might ask the city's major creditors to take in case bankruptcy can't be avoided.

The Bing administration insists it's working on a turnaround and not bankruptcy. But Friday, Bing acknowledged it's a possibility that he's working strenuously to avoid.

Douglas Bernstein, who leads the banking, bankruptcy and creditors' rights practice at Plunkett Cooney law firm in Bloomfield Hills, Mich., said that although he couldn't comment directly on what's happening at the state capitol with Detroit's crisis, "such preparations are prudent because there's contingency planning that has to be done."

"Ideally, you hope to do a restructuring outside of bankruptcy, bankruptcy being the last resort," Bernstein said Friday. "That being said, you should have a contingency plan in the event you're unable to do it."

'It's going to be hard'

Bing and his staff had hoped for more time for Detroit's financial stability agreement to extract reforms through pay cuts to city workers and reductions in pension and health care benefits. City officials say the cuts could save Detroit more than $100 million a year, and the savings will begin to bear fruit in early 2013.

Unlike a federal bankruptcy judge who may have little or no ties to Detroit, the joint city-state financial advisory board that has major sway over the city's finances has considered both the urgent need to fix Detroit's budget crises and the need to maintain crucial public services, said William "Kriss" Andrews, the program management director overseeing Detroit's reform agenda.

"They've taken a wise and broad view, an enlightened view, of its charter to do both things," Andrews said. "We fully intend to be successful. It's going to be hard, and we recognize that."

The council is scheduled to vote Tuesday on new contracts for auditing firms to review fraud in the city's workers compensation claims and in health care dependency eligibility, and another to review how Detroit collects property taxes.

The council also will revisit a controversial $300,000 contract for the Miller Canfield law firm, which Bing hired to advise him on the city's consent agreement. The council previously rejected the contract, saying the law firm has conflicts of interest because it helped write the state's now-repealed emergency manager law, as well as the financial stability agreement that so far has failed to fix Detroit's fiscal mess.

Those contracts are among several goals Bing and the state agreed to meet for the state Treasury to release $30 million in bond proceeds to keep the city afloat. Bing warned city employees that widespread furloughs begin in January and layoffs will happen as soon as he can negotiate them with city unions - even if the city gets the $30 million.

The deadlock was underscored when Moody's Investors Service downgraded Detroit's bond rating deeper into junk status. Moody's cited uncertainty after the repeal Nov. 6 of Public Act 4, the emergency manager law, as weakening state oversight of Detroit and raising the risk of a city bankruptcy or default in the next 12 to 24 months.

Bing's administration says the city will be able to make payroll through the end of the year, but the city is on track to be $47 million in the hole by June 30 without an influx of cash from a $137 million bond sale that was intended to keep Detroit solvent while it restructures.

Andrews said Detroit is not now at risk of missing debt payments, and he and Bing's office said they believed the city will be able to manage the cash crisis with furloughs and other cuts yet unidentified. However, union officials, question whether the savings from furloughs outweigh the disruption to city services.

But absent the ability of the city to significantly modify collective-bargaining agreements - a power that died with Public Act 4 - "I think it ends up being inevitable" that Detroit will file for bankruptcy, Bernstein said.

Andrews wouldn't speculate on what sorts of cuts the city might seek, but the stakes are clear. Detroit's long-term debt alone exceeds $12 billion in retiree pension and benefits costs and bonds. That would make it by far the largest U.S. municipal bankruptcy ever.

Detroit, with about 700,000 residents, also would be the largest city by population to have filed for Chapter 9.

A Detroit bankruptcy would put the city in company with a growing number of municipalities across the country that ran into deep trouble amid the Great Recession and its housing crash. That recession was exacerbated in the Motor City by rapid depopulation, high poverty rates, blight and loss of manufacturing jobs.

Part of what has kept municipal bankruptcies low compared with corporate or personal bankruptcies is the badge of shame associated with it, Bernstein said.

"From a city standpoint, right or wrong, there's still a stigma attached," he said. "In the old days, it was perceived that if you filed for bankruptcy protection, you'd failed. In my practice, the stigma is reduced, but in certain circumstances, it's still there."

Bernstein sees an optimistic side to bankruptcy, giving cities the chance to clear out debt, reduce legacy costs and restructure government with a "clean sheet going forward."

But it's a painful process to get there. Municipal bankruptcies can result in reduced public services, further work force cuts, consolidation or elimination of some departments and drastic reductions to pay and benefits for workers who keep their jobs. Current workers and retirees could lose health care benefits outright or see them significantly scaled back. Those are among the costs strangling Detroit, which already has reduced health care and pension benefits for current city workers and trimmed health care for retirees.

It also could mean new taxes on residents, workers and businesses to boost the city's revenue although hefty increases aren't likely, Pottow said.

"Substantial tax increases to raise revenue is not viable for a city as economically fragile as Detroit," Pottow said. "Creditors aren't stupid. They know that."

The shipyard town filed for bankruptcy in May 2008, buried under what City Manager Daniel Keen said were generous pay and benefits packages the town northeast of San Francisco could no longer afford.

Today, Vallejo operates on a comparative shoestring. Before bankruptcy, the city of 115,000 residents had 148 police officers; it's now down to 93. The city said it had no choice but to close several fire stations.

Every department in the city took at least a 25% cut in staffing. Vallejo stopped street maintenance for several years. It whittled previously generous health care benefits for most employees to what Keen said is now a minimal plan. And a bankruptcy judge approved dissolving some employee union contracts and restructuring others.

Keen said the city's work force of about 500 now is "a bare-bones of staff doing the same work required to serve a city of 115,000 people."

"The public safety needs didn't go away. We didn't have fewer police situations. We didn't have fewer fires. We didn't have fewer street problems," Keen said. "It's been a real challenge."

But worse is the perception of financial failure. Keen said he's working to give people confidence that Vallejo is a city that works within its means to grow its economy.

"The decision to go into bankruptcy has changed the relationship of the city to its residents, and the stigma of going into bankruptcy is not something I would wish on anyone," Keen said. "Time will tell how long it takes to get rid of that reputation. We're going to be dealing with the bankruptcy hangover for a long time."

Detroit council President Charles Pugh acknowledges that his city faces those same prospects despite its often acrimonious efforts to reduce costs and cut wages and benefits to avoid deeper state intervention.

"It's frustrating and scary at the same time," said Pugh, who still considers Chapter 9 a last resort.

"We can't keep spending money we don't have, either," he said. "At some point, we have to come to a resolution. Plans on paper are only as good as their execution. The reality is, it would be painful."